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Nail It, Then Scale It

By: Dave Berkus


So your business has begun to take off. You’ve figured out your channels of distribution, pricing model and how to support your growing list of customers. Don’t be alarmed by this next statement. That’s relatively easy.
You can be the one to develop a product or service, promote it, and support it when you are a small operation. But what if you need to repeat the process of positioning, selling, and supporting your product ten thousand or more times as often as you do today?
It’s worth repeating my every three million dollar crisis insight. You will have recurring crises as you grow your business. These are predictable and usually arrive in the same recurring order, and often with every $3 million in additional annual gross profit from revenues as you grow.
The first crisis is financial, funding the business, development, inventory, and marketing. The second crisis is organizational. At about the twenty employee level, the organization is too large for one person to handle internal operations, and a new level of management must be inserted between the founder and the existing team, causing communication and control issues that many founders have not experienced.
The third crisis is one of quality control. At about $6 million in revenue, there are so many new customers that product or service quality is stretched to the limit, and complaints about quality surface in quantities you never experienced previously.
Guess what? And, at about $9 million in annual revenue, the cycle repeats, with financial needs for additional working capital and money for growth churning to the top of the problem stack. And, as you grow, the same class of problems returns but with a larger scale and more urgent cry for attention—and more ruinous if not solved.
It is important—no it is urgent—that you solve these problems and know how to spot them coming in advance. To scale any company to a large size, you must know how to solve the problems of production, customer service, working capital needs and more in order to keep the company on the rails. The cost in lost efficiency, customer referrals, and corporate reputation is too high not to make this a priority for a growing business.
Many of the insights in this book and the BERKONOMICS series deal with the issues of scaling your business. As you feel more and more comfortable being able to scale each portion of the operation, you will be able to focus upon other areas of weakness, spreading the risk out and into a manageable range, rather than overwhelming you and your growing staff with their magnitude.
But wherever possible, it is best to nail down the processes and structure before and as you scale the business, not in emergency response to issues as they develop and grow to threaten the enterprise.

This article was originally published by Berkonomics
Published: July 6, 2015

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Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

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